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Defining the Monetary Base
A student argues that since the funds in their commercial bank checking account can be used for transactions just as easily as physical cash, these checking account balances should be included in the definition of the monetary base. Explain why this student's reasoning is incorrect, based on the specific components that constitute the monetary base.
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Economics
Economy
Introduction to Macroeconomics Course
Ch.6 The financial sector: Debt, money, and financial markets - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Ch.7 Macroeconomic policy in the global economy - The Economy 2.0 Macroeconomics @ CORE Econ
Analysis in Bloom's Taxonomy
Cognitive Psychology
Psychology
Related
Role of Commercial Bank Reserves in the Payment System
Base Money as a Liability of the Central Bank
Contrast in Bank Reserves: Grain in the Marco-Julia Model vs. Central Bank Reserves in Reality
Classification of Base Money Components
Central Bank's Role in Maintaining Trust in the Banking System
The Question of Base Money's Value
An economy reports the following financial data: Physical currency held by the public is $200 billion, physical currency held in commercial bank vaults is $50 billion, commercial bank reserves held at the central bank are $150 billion, and checking account deposits held by the public in commercial banks are $1,000 billion. Based on this information, what is the total value of this economy's monetary base?
Analyzing a Central Bank Action
A central bank purchases $10 million in government bonds directly from a commercial bank. The central bank pays for these bonds by crediting the commercial bank's account at the central bank. What is the immediate and direct effect of this transaction on the monetary base?
An economic analyst makes the following claim: 'The monetary base is comprised of the most liquid assets in the economy that are created by the central bank. This includes all physical currency held by the public and all the money individuals and firms hold in their checking accounts at commercial banks.' Which of the following provides the most accurate critique of the analyst's claim?
When a private individual deposits $100 of physical cash into their checking account at a commercial bank, the total monetary base of the economy remains unchanged.
Defining the Monetary Base
Match each financial item to the statement that best describes its relationship to the monetary base.
Evaluating a Shift to a Cashless Monetary Base
Composition of the Monetary Base
Impact of a Cash Withdrawal on the Monetary Base